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VCT fundraising hits eight-year high

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09/04/2014
The amount of money invested in venture capital trusts (VCTs) reached an eight-year high in the 2013/14 tax year, figures have revealed.

Data from the Association of Investment Companies (AIC) show the VCT sector raised £435.7m in the year to 5 April 2014, an 8 per cent increase on the previous tax year and the third highest level ever of annual funds raised.

This figure includes enhanced share buy-backs, where the seller of VCT shares re-invests them.

If enhanced share buy-backs are deducted, the VCT sector raised £420.2m in the 2013/14 tax year, an increase of 56 per cent on the £269.4m raised in the previous tax year and the fourth highest level of annual fundraising.

The total assets under management in VCTs increased from £2.87bn to £3.21bn last tax year to reach an all-time high.

Ian Sayers, director general of the AIC said: “It is clear that demand for the sector continues to grow, as investors recognise the place of VCTs in a balanced portfolio and the role that tax reliefs play in offsetting the inherent risks of investing in smaller companies.”

Experts predict VCT demand will surge as the UK economic recovery gains pace.

Jason Hollands of adviser firm Bestinvest said: “As a scheme which is focused on small trading businesses that must operate wholly or largely in the UK, VCTs are investing at the coal face of the domestic recovery, unlike funds investing in listed UK equity markets where companies are more international in nature.”

While a number of VCTs have shut their doors to new money, several will continue raising funds into the new tax year.

Here, Jason Hollands highlights two VCT ideas for 2014:

Top pick: Unicorn AIM VCT

Unicorn AIM is the largest VCT focused on companies listed on the resurgent Alternative Investment Market, the junior stock exchange for small, growth companies.

It is managed by Unicorn Asset Management, a specialist boutique with a fantastic track record managing smaller company funds. In addition to providing access to a diverse portfolio of 47 qualifying AIM companies, part of the non-qualifying portfolio is used to invest in their top performing open-ended fund range to help enhance returns.

AIM is experiencing a strong renaissance at the moment as smaller companies are back in favour and the exchange enjoys the tailwinds of supportive policy initiatives, including the recent inclusion of AIM shares as eligible for ISA investment and the impending abolition of stamp duty on dealing in AIM shares.

While the latter two measures don’t directly affect this VCT, they do support interest in the market in which it invests. £8 million of capacity is available.

Generalist choice: British Smaller Companies VCTs

This offer is raising money across two long-established VCTs, British Smaller Companies and British Smaller Companies VCT 2, both of which are managed by YFM Equity Partners.

The team focuses on investing in already profitable unquoted companies across a range of industries, with around 75 per cent of deals in support of management buy-outs, buy-ins and the remainder to fund expansion.

The VCTs take an active involvement in portfolio companies, placing directors on their boards. The current portfolio is well diversified, with circa 39 qualifying investments as well as government bonds, fixed income securities and bank deposits.

British Smaller Companies has a target dividend of 5.5p and BSC2 4.5p, both of which have been achieved in the past. They also have a shareholder friendly policy of buying back shares to limit the discounts to net asset value (NAV) at 10 per cent. Just £5m of capacity remains.

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